Hong Kong braces for rising interest rates

HK banks more exposed to Mainland firms.

According to  BBVA Research, the Hong Kong Monetary Authority (HKMA) released its latest Half-yearly Monetary and Financial Stability Report. It highlighted risks of rising interest rates on the back of Hong Kong banks' rising exposure to Mainland firms.

Here's more from BBVA:

The report presents a generally benign outlook for Hong Kong, noting that the economy has weathered well the recent bout of financial market volatility emanating from expectations of Fed QE tapering -- in contrast to other emerging market currencies, the Hong Kong Dollar, which is pegged to the USD and has shown “safe-haven” characteristics, did not experience depreciation pressures.

The HKMA expects GDP growth to be sustained during the rest of the year on improving external demand, in line with our growth projection of 3.3% for 2013.

Nevertheless, the report highlights a number of risks. In particular, while housing prices have softened following the implementation of macroprudential pressures over the past year, valuations remain stretched and the HKMA emphasizes the impact of rising global interest rates in the period ahead on bank balance sheets and asset quality.

It also sights banks’ rising exposure to Mainland companies as a source of risk in view of the increase in financial fragilities in China, as flagged in our recent Economic Watch on corporate debt.